Canada: Recent Amendments To Provisions On Hypothecs Under Civil Code Of Québec

INTRODUCTION

Bill n°28 titled An Act mainly to implement certain provisions of the Budget Speech of 4 June 2014 and return to a balanced budget in 2015-2016 (Act) passed on April 20, 2015 and received assent the next day. The Act made changes to hypothecs in the Civil Code of Québec (CCQ), including the amendment of Article 2692 in order to simplify the holding of a hypothec through a hypothecary representative called the fondé de pouvoir and the introduction of a new legal regime regarding pledges on certain monetary claims. Quebec becomes the first Canadian province to enact such legislation in order to facilitate the granting of pledges on monetary claims.

This bulletin provides an overview of these changes, as well as an analysis of the new regime and its most innovative aspects.

FONDÉ DE POUVOIR: FLEXIBILITY OF CCQ PROVISIONS

Under the regime prior to the Act, a person could not hold a hypothec in favour of a third party, with the exception of a hypothec in favour of a fondé de pouvoir granted in compliance with certain stringent conditions set forth in Article 2692. The new Article 2692 simplifies this regime and allows a grantor to grant a hypothec in favour of one of the creditors or the only creditor, or a third party representing the creditors of the underlying obligations secured by such hypothec. The hypothecary representative is appointed by the debtor or grantor or one of the creditors. It is the holder of the hypothec and has the power to exercise all of the rights thereunder. It can be replaced in accordance with the conditions and subject to the terms specified in the agreement appointing it in the first place or, in the absence of such an agreement, as determined by the creditors.

Moreover, the wording of the new Article 2692 shows great flexibility with respect to the identity of the grantor, the fondé de pouvoir and the type of obligations that can be secured under such a hypothec. Such obligations can be of any nature, present and future of a legal person, partnership or trustee. The secured obligations are no longer restricted to the payment of bonds or other titles of indebtedness. Hence, the legislator confirms that the granting of a hypothec in favour of a fondé de pouvoir in accordance with Article 2692 is optional for a single creditor, even when the hypothec of such creditor secures the payment of a bond or another title of indebtedness. Despite this high wind of change, the legislator opted for the preservation of the formalism imposed on such hypothecs which must, on pain of absolute nullity, be granted by notarial act, except in the case of pledges.

NEW REGIME FOR PLEDGE ON CERTAIN MONETARY CLAIMS

The Act also implements a new regime for hypothecs with delivery on certain monetary claims that are covered in the definition of the new Article 2713.1 (Claims). These Claims include, for instance, bank deposits, deposits subject to an escrow agreement, balances of sale, margin deposits or settlement (cash collateral).

The new regime is similar to the one applicable to securities and security entitlements under An act Respecting the Transfer of Securities and the Establishment of Security Entitlements. In both cases, the establishment of such a regime was needed to circumvent the requirement of a physical delivery in order to obtain a pledge on claims not represented by a negotiable instrument under Article 2702. This regime goes beyond Article 9 of the Uniform Commercial Code by its broader scope as it is not limited to deposit accounts.

Essentially, the new articles establish the requirements for control in order for a pledge on a Claim held by the grantor of the hypothec against the creditor or against a third party to be constituted and set up against third parties. In the first instance, in the event that the Claim is held by the grantor of the hypothec against the creditor who is also the holder of the hypothec, a simple consent of the grantor is sufficient to obtain control of such Claim by the secured creditor. In the second instance, in the event that the Claim is held by the grantor against a third party, control is obtained inter alia by a written agreement called a "control agreement" entered into by and between the grantor, the secured creditor and the third-party debtor of such Claim. However, this second instance is only applicable to Claims that relate to the credit balance of a financial account maintained by the debtor on behalf of the grantor or to an amount of money paid to the debtor to secure the performance of an obligation towards the creditor. Moreover, in this second instance, a creditor may also obtain control of a Claim on the credit balance of a financial account if it becomes the holder of that account.

Pursuant to Article 2713.7, the hypothec of a secured creditor that obtains such control takes—from the time that such control is obtained—precedence over any other hypothec on such Claim, regardless of the time of publication of the hypothec. If two or more movable hypothecs with delivery are granted on the same Claim in favour of creditors—each of whom has obtained control through a control agreement—the hypothecs rank among themselves according to the time when the third party has agreed to comply with the instructions of the creditor. It should be noted that Article 2714.2 has also been amended by the Act to provide the same priority rule between two hypothecs with delivery on security entitlements in favour of creditors, each of whom has obtained control through a control agreement to the time when the securities intermediary has agreed to comply with the orders of the creditor. These new provisions of Article 2714.2 are declaratory and therefore retroactive. The hypothec held by a creditor who is also the debtor of the Claim charged under the said hypothec will, however, always take precedence over the other hypothecs unless the Claim relates to the credit balance of a financial account and another creditor obtains control by becoming the account holder, in which case the hypothec of that other creditor shall prevail.

Specific conflicts of law rules are included in the Act under Article 3106.1 for the validity of such security, as well as the publication of the security and its effects. Publication of the security by registration is, in all cases, governed by the law of the jurisdiction in which the grantor is domiciled.

TRANSITIONAL PROVISIONS AND COMING INTO FORCE

The Act provides that the new Article 2692 has entered into force on the date of its assent, which was April 21, 2015. The hypothecs granted in favour of a fondé de pouvoir in accordance with the previous regime remain valid.

With respect to pledges on Claims, the new provisions shall come into force on January 1, 2016. However, pursuant to the transitional provisions, pledges made by a creditor that has obtained control in accordance with the new provisions—even if such control was obtained before January 1, 2016—may not be cancelled or declared unenforceable against third parties for that reason alone. Therefore, it is possible to obtain control over the Claims in accordance with the new regime and have a pledge on such Claims as of today since the creditor's rights will be recognized as valid and opposable against third parties upon the entry into force of the regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions